Day one for United Continental Holdings, battle looms on outsourcing

Analysis

United and Continental completed their legal merger on Friday and kicked off the day with a mini-press conference marking the event. The pilots unions also recognised the milestone, reiterating its opposition to further outsourcing.

United Chairman and CEO Jeff Smizek tried, but failed, to dodge the question.

“We are working with all our workgroups to reach agreements that are fair to them and to the company,” he said. “I never negotiate in the press and will leave negotiations to the table.”

That may be so, but Smizek has often signalled his displeasure with Continental's regional jet cap of 50 seats. Facing repeated questioning on the topic, it was clear he had not changed his position.

“I’ll come at it from the legacy Continental point of view,” he said, commenting on the controversy for the first time since United and Continental pilots made the issue quite public. “We have been hampered and disadvantaged because the biggest regional jet we could use is 50 seats. That is not a competitive product. Most of our competitors offer more compelling products such as two-class service. That’s what United offers. That is a very important product for business travelers and for feed and the profitability of the carrier going forward.”

Meanwhile, the pilots’ unions pointed out that its fight on outsourcing is being watched worldwide, suggesting it gives them more impetus to maintain a stiff bargaining position. They reminded management that a true closing of the merger will happen only after a joint collective bargaining agreement (JCBA) is achieved and the two pilot groups are combined.

World has eye on issue of pilot outsourcing

"No issue carries more weight than scope and the cessation of outsourcing,” said Captain Wendy Morse United Master Executive Council and Captain Jay Pierce, Continental Master Executive Council, in a joint statement. “The pilots of Continental and United Airlines believe the time is right to correct the wrongs of the past with solutions that benefits our pilots. We believe it is our responsibility, to our pilots and to our passengers, to remind management that the business of an airline is to fly – not to outsource flying to the lowest bidder or to merely act as a ticket agent. When customers choose an airline, they rightly expect to receive service from that airline, with pilots employed and trained by that airline at the controls.

"We must remind the new United management that absent a pilot contract ratified by the pilots of both airlines, United will not achieve the touted synergies from this merger. Airline pilots throughout the world are taking notice of our stance and fight for job and scope protections. The industry is watching. The sooner management recognises our determination and resilience regarding the protection of our jobs, the sooner they can enjoy the real fruits of this merger. It's time for a new beginning, a clean slate for United Airlines, for the pilots and for our passengers. We look forward to being able to join the new CEO and his management team in celebrating the new United Airlines. We will reserve our celebration for when the job is done and we have a JCBA in place that rewards the skill, training and responsibilities of our pilots and rightly returns flying to our airline. Until that time, management will be celebrating alone."

The combative language from pilots came just after Continental announced it reached a tentative agreement on a new labour contract with the International Association of Machinists and Aerospace Workers (IAM) representing Continental flight attendants. The IAM is expected to hold a ratification vote in the coming weeks. The agreement covers approximately 9,300 Continental flight attendants located throughout the US.

Otherwise, the 16,000 United flight attendants, represented by the Association of Flight Attendants-CWA, were collaborative saying they look forward to helping management “make our airline the best place to work and the best place to fly".

The long road to integration

Smizek did not see much beyond what the company had already been doing as part of the Star Alliance to co-locate the two operations at airports.

Joined by his new executive team – Executive Vice President and Chief Revenue Officer Jim Compton, EVP and Chief Operating Officer Pete McDonald, EVP and Chief Financial Officer Zane Rowe and EVP and President of United’s Mileage Plus programme Jeff Foland – Smizek sung the praises of the new United.

“We are starting today our journey to become the world’s leading airline,” he said. “We have the best coworkers, the world’s most comprehensive network, a young and flexible fleet, the best aircraft order book in the industry and the world’s leading frequent flyer programme.”

He indicated that full integration will take between 12 and 18 months meaning the two carriers will operate as separate entities until then. For now customer contact will be “business as usual,” he said with customers interacting with each airline separately including frequent flyer programmes. However, customer service and market activities will likely be integrated in the Spring 2011 when customers will begin seeing a more unified product. Friday they began trading on the New York Stock Exchange under United Continental Holdings (UAL).

Smizek said that it will likely take a year to obtain a single operating certificate from the Federal Aviation Administration. In discussing the changes at the airline, Smizek repeatedly emphasised what can only be described as a new corporate culture for United vets. He continued to punch home the differences the new leadership will mean to employees.

“My goal is to have joint collective bargaining agreements in place before we get our single operating certificate,” he said. “We are surrounding ourselves with people who have a passion for the airline business and we are giving them the tools they need to succeed. I am very focused on making sure we produce a culture of working together with open, honest and direct communications that treat our co-workers and our customers with dignity and respect. We are in the service business and it is the people who get the job done and make all the difference. We understand that and are committed to making United the airline of choice for both customers and workers.”

Smizek also said he remains confident that the merger will result in a carrier that makes a sustained meaningful profit and delivery the USD1.2 billion annual synergies by 2013.

In response to a question about overshadowing Delta as the world’s largest airline, Smizek said: “We are focused on building the world’s best airline. We have tremendous traffic flows over the Atlantic, great mid-continent hubs, Houston for Latin America and are strong on the West Coast to the Pacific. We have the world’s leading frequent flier program and we are going to have the best customer service in the business. We are focusing on business travelers -- as well as all travellers but we will also increase the mix of business travelers because we can offer a very compelling business proposition for corporate travel departments. They will be flying on a single carriers. They will be recognised for the elites they are and we are making sure they make their connections and get their bags. We are confident the new United will be a potent competitive force whether from global or domestic carriers.”

He dodged questions as to when United will be making its narrowbody decision and wouldn’t be pinned down to a timetable. “The management team just got here today and we haven’t had access to each other’s details such as flight profitability statistics because the lawyers wouldn’t let us,” he said. “So we will do the analysis and figure out a fleet plan and when we’re ready to announce we will. But I will tell you this carrier has a tremendous fleet, best order-book amongst the majors and very flexible fleet between United and Continental. We are very pleased with the fleet we have.”

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